Economics Chapter 30 Summary
‘Business cycles’
Recession – characterised by a period of falling incomes, rising unemployment and technically occurs
after 2 successive quarters of negative growth.
Depression – a severe recession.
Business cycle – the fluctuations in economic growth around the trend growth.
Data we will be looking at in this chapter is classed as time series data – observations on a variable
over a time-period and which are ordered over time.
Data concepts
GDP shows a pattern of peaks and troughs and periods where growth is accelerating, decelerating
and in some cases is declining.
Peak – where economic activity reaches a high and real output begins to decline.
Trough – where economic activity reaches a low and the decline ends.
(we speak of ‘accelerating’ and ‘decelerating’ to describe changes in growth of GDP when its positive)
Contraction – when real output is lower than the previous time period.
Amplitude – the difference between peak and trough and trend output.
Trends (point of disagreement about time series data)
Trend – the underlying long term movement in a data series.
Trends can demonstrate patterns over a period which can be described as :
- stationary data – time series data that has a constant mean value over time.
- nonstationary data – time series data where the mean value can either rise or fall over time.
Deterministic trends – are constant, positive or negative independent of time for the series being
analyzed.
Stochastic trend – trend variables change by some random amount in each time period.
Procyclical and Countercyclical Movements in Macroeconomic Data
Comovement – refers to the movement of pairs of variables.
Procyclical – is a variable that is above trend when GDP is above trend.
• Real wages/ nominal interest is an example.
Countercyclical – is a variable is that is below trend when GDP is above trend.
• Unemployment is an example
Variables as indicators
Cyclical indicators can have three characteristics:
- leading indicators – indicator which can be used to foretell future changes in economic activity
- lagging indicator – indicator which occurs after changes in economic activity have occurred
- coincident indicator – indicator which occurs at the same time as changes in economic activity 4
Causes of changes in the business cycle
Changes can be caused by:
1. Household spending decisions – they decide on how much labour to supply.
2. Firms’ decision making – decisions about production levels, how much output to produce.
‘Business cycles’
Recession – characterised by a period of falling incomes, rising unemployment and technically occurs
after 2 successive quarters of negative growth.
Depression – a severe recession.
Business cycle – the fluctuations in economic growth around the trend growth.
Data we will be looking at in this chapter is classed as time series data – observations on a variable
over a time-period and which are ordered over time.
Data concepts
GDP shows a pattern of peaks and troughs and periods where growth is accelerating, decelerating
and in some cases is declining.
Peak – where economic activity reaches a high and real output begins to decline.
Trough – where economic activity reaches a low and the decline ends.
(we speak of ‘accelerating’ and ‘decelerating’ to describe changes in growth of GDP when its positive)
Contraction – when real output is lower than the previous time period.
Amplitude – the difference between peak and trough and trend output.
Trends (point of disagreement about time series data)
Trend – the underlying long term movement in a data series.
Trends can demonstrate patterns over a period which can be described as :
- stationary data – time series data that has a constant mean value over time.
- nonstationary data – time series data where the mean value can either rise or fall over time.
Deterministic trends – are constant, positive or negative independent of time for the series being
analyzed.
Stochastic trend – trend variables change by some random amount in each time period.
Procyclical and Countercyclical Movements in Macroeconomic Data
Comovement – refers to the movement of pairs of variables.
Procyclical – is a variable that is above trend when GDP is above trend.
• Real wages/ nominal interest is an example.
Countercyclical – is a variable is that is below trend when GDP is above trend.
• Unemployment is an example
Variables as indicators
Cyclical indicators can have three characteristics:
- leading indicators – indicator which can be used to foretell future changes in economic activity
- lagging indicator – indicator which occurs after changes in economic activity have occurred
- coincident indicator – indicator which occurs at the same time as changes in economic activity 4
Causes of changes in the business cycle
Changes can be caused by:
1. Household spending decisions – they decide on how much labour to supply.
2. Firms’ decision making – decisions about production levels, how much output to produce.
